Microsoft earnings in the fourth quarter of 2022: Windows and Xbox fall in the quarter by $51.9 billion

Microsoft released the fourth quarter of its 2022 financial results today, bringing in revenue of $51.9 billion and net income of $16.7 billion. Revenues increased by 12% and net profit only increased by 2%. But as revenue rose, Microsoft saw some of its core businesses, including Windows and Xbox, begin to decline.

The PC market has boomed throughout the pandemic, but PC shipments have seen a sharp decline in the last quarter – nearly 13% according to Gartner. It was the steepest decline in nine years, thanks to geopolitical tensions, inflation and ongoing supply chain challenges.

Microsoft’s Windows OEM revenue, the price PC makers pay Microsoft to install Windows on machines, fell 2% in the fourth quarter, due to what Microsoft described as “production shutdowns and deterioration of the PC market.

Photo by Becca Farsace/The Verge

“We saw the market weaken during the quarter, which impacted our results,” Kendra Goodenough, Microsoft’s director of investor relations, said on a call with Microsoft. The edge. Despite the weakness in the PC market, Surface is doing well commercially. Surface revenue grew 10% in the fourth quarter, despite no major Surface launches in the quarter. “The consumer side is definitely shrinking at a faster rate when it comes to the overall demand environment right now, so when we think about Surface’s business strength, that’s where we get a little more help. on this surface [revenue] number,” says Goodenough.

Microsoft refreshed its compact Surface Laptop Go in June with an 11th Gen Intel processor, but we’ll wait until the fall until we see a bigger refresh to the Surface lineup. 2022 marks 10 years of Surface, so expect the usual fall event for new devices.

All eyes are now on Intel’s planned price increases for its processors and chips, and how they might affect the PC market. Intel is planning price increases for its flagship processors and a wide range of other chips later this year, including Wi-Fi and other connectivity chips.

Photo by Vjeran Pavic / The Verge

On the Xbox side, hardware revenue fell 11%, alongside a 6% drop in Xbox content and services revenue. Microsoft attributed the service declines to “lower engagement hours and monetization” across first-party and third-party titles.

β€œThe decline you’re seeing in Xbox hardware is partly a reflection of the fact that we had that launch… about two years ago, so with the supply constraints that we’d seen over the last two years, it kind of extended that period for consoles,” says Goodenough. “We’re still seeing strong demand, but we’re getting closer to the highs we’ve had for the past two years with the launch.”

Last quarter, Microsoft revealed 10 million people had been using the company’s Xbox Cloud Gaming service, and that’s bound to grow even more thanks to Fortnite now being the only game it’s free to stream on the service. Microsoft did not provide an update to Xbox Game Pass subscribers this quarter, after the service became 25 million in January following the holiday outings of Age of Empires IV, Forza Horizon 5, and Infinite Halo.

Microsoft is also not discussing its project Acquisition of Activision Blizzard for $68.7 billion further today. The purchase is expected to close in fiscal year 2023 and will see Microsoft release franchises such as Warcraft, Diablo, Surveillance, Call of Duty, and Candy Crush.

Outside of games and Windows, Microsoft’s Office, cloud and server products continue to grow at impressive rates. Revenue from Office commercial products and cloud services increased 9% this quarter, and Office Consumer increased 9% year over year. Microsoft 365 Consumer subscriptions now stand at 59.7 million, as Microsoft continues to attract consumers to Office subscriptions and services such as Microsoft Teams.

Microsoft’s cloud services continue to grow.
Picture: Microsoft

Revenue from Microsoft’s server products and cloud services also jumped 5% year-over-year, driven, as always, by 22% growth in revenue from Azure and other cloud services.

LinkedIn continues to grow at Microsoft, driven by advertising demand. LinkedIn revenue grew 26% this quarter, which Microsoft attributes to its Talent Solutions and Marketing Solutions businesses. Search and news ad revenue also grew 15% year-over-year.

These latest results come after Microsoft was forced to lower its guidance for this quarter in June, and the company cited unfavorable exchange rates. The dollar is strong against a number of currencies at the moment amid geopolitical tensions and inflation. Microsoft is affected when it converts foreign currencies into dollars. Microsoft is now also seeing the effects of a slowing PC market, and even reduced spending in the advertising market, as the economic outlook looks increasingly uncertain.

Microsoft will now host an earnings call with investors at 5:30 p.m. ET / 3:30 p.m. PT, and we’ll update this article with any relevant comments.

Update, July 26 4:45 p.m. ET: Article updated with comments from Microsoft.

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